I wrote a while ago about currency crises (see here). There I suggested that classical-Keynesian or post-Keynesian views on currency crises invert the causality between fiscal and balance of payments problems in a currency crisis. Currency crises are not caused by excessive fiscal spending financed by monetary emissions, which would lead to inflation, and eventually after a run on the currency and depletion of reserves to a devaluation, but on current account problems.

There two key problems with the conventional view. On the one hand, the very monetarist notion that increases in money supply have direct impact on prices, and no effect on quantities. That would be an extreme natural rate hypothesis. But also that these models presume that fiscal deficits and debt denominated in domestic currency are the problem in currency crises, when the relevant debt is the foreign one, related to the current account deficit, and denominated in foreign currency. In other words, whereas default in …

The Progressive Economics Forum holds its annual meetings at the
Canadian Economics Association (CEA) conference. This year we are at Ryerson University,
Toronto, Thursday, May 28 to Sunday, May 31, 2015.

Introducing Marc Lavoie
May 29, 2015

By Louis-Philippe Rochon

I am very honoured to be introducing this year’s guest speaker.

When I was asked to introduce him, I found myself in a bit of a conundrum.

After all, how can I possibly do this in just 5 minutes? I mean it is impossible to do justice to his work over the last 35 years in such a short time. His CV by the way is 40 pages long. So one would need quite possibly a good hour to cover all the important features of our guest’s distinguished career.

Marc Lavoie obtained his doctorate from Sorbonne Paris 1 in 1979 and arrived at the University of Ottawa the same year. It was only a few years later, in 1983, I believe, that I had him as a professor. I took Introduction to Post-Keynesian Economics (with a hyphen!) largely beca…

The Senate approved fast track for the Trans-Pacific Partnership (TPP), giving Obama authority to negotiate. It has to be approved by Congress still. On this topic, it is interesting that it is the first time Krugman came out (or here), as a closet 'protectionist', and was against a Free Trade Agreement (FTA). Note that the reason for his Sveriges Riksbank Prize (aka Nobel) was: "his analysis of trade patterns and location of economic activity."

His contribution to the analysis of trade patterns was essentially to introduce imperfect competition in the mainstream trade model. And actually what introducing imperfect competition in the mainstream Heckscher–Ohlin-Samuelson (HOS) model (the limitations of that model were discussed here before) did was to suggest that under certain circumstances trade management might be a good idea. He edited later a book, Strategic Trade Policy and the New International Economics, in which some more vocal defenders of trade intervent…

Mauro Boianovsky and Roger Backhouse have written a brief post on the topic, based on a longer paper. As I understand the modern version, due essentially to Larry Summers, it basically suggests that there are insufficient investment opportunities, or a savings glut to use Bernanke's hypothesis, discussed here before. I explained why it doesn't seem particularly compelling story in that previous post. If public spending picked up in the US, so would private investment, and the savings glut would vanish. Yes global imbalances would increase. That would be good. Global imbalances would solve the 'secular stagnation' problem.

Note that the Summers' view is different than the Robert Gordon's view, but not incompatible with it, according to which the innovations of the third industrial revolution are less transformative than those of previous waves of technological change. As noted before also, since I believe the evidence for demand driven technological innovation …

Hillary Clinton does not want to talk about past economic controversies. And it is easy to understand why. There is much that is troubling. But let’s not go along with her wishes. You can learn a lot by studying recent history and even more by watching how politicians react to that history.

The big “let’s move on” story of the Clinton campaign is the refusal to answer journalists. According to the Washington Post in the first 29 days after she announced her campaign she took just eight questions. The campaign’s response to all this? Blah. Reporters whining as usual.

Now, I’m not going to be impolite and focus on questions about the Iraq War which have been getting Jeb Bush in deep trouble with some liberals. Instead, I’m going to focus on economic policy which is my area of expertise. It also seems to be the focus of Mrs. Clinton’s campaign.
Read rest here.

Catching up with work after grading. Posting will continue slow for a few weeks. Just a brief note on the brouhaha that the Romer (Paul) paper has led to. I mostly read it in Lars blog. Lars quotes Romer as saying:
"About math: I have an undergraduate degree in physics.* I’ve seen clear evidence that math can facilitate scientific progress toward the truth. If you think that math is worthless or dangerous, I’m sure that there are people who will be happy to discuss this with you. I’m not interested. I’m busy.
About truth and science: My fundamental premise is that there is an objective notion of truth and that science can help us make progress toward truth. If you do not accept this premise, I’m sure that there are people who would be happy to debate it with you. I’m not interested. I’m busy."
I should say that I only looked cursorily at the paper, which seems poor at best. The notion that: "Joan Robinson (1956) was engaged in academic politics when she waged her camp…

How Should Economics be Taught? -- Vicenç Navarro on the need for more interdisciplinary and about Podemos in Spain (h/t Mike Norman). Don't get me wrong, interdisciplinary is certainly good, but the problems with economics are within the discipline. Doesn't help much to have historical and political perspective if the economic model suggests markets are self-regulated with a tendency to the natural rate of unemployment.

Blaming Keynes -- Simon Wren-Lewis response to Niall Freguson's FT piece. How well has the UK done under the Tories? His reply: "growth in GDP per head under Labour averaged 1.5% even though it included this recession, but average growth from 2010 to 2014 was only 1% when we should have been seeing a rapid recovery."

The journal, Cuestiones Económicas, is being re-launched. I had a paper published back in 2001, pictured above. And have been invited to be a member of the board now. Call for papers (in Spanish) here. Interestingly, the paper is not the one on Ecuador and dollarization (for that one go here).

From yesterday's panel on "Reforming the Future: Lessons from Sovereign Debt Restructuring" held at the Atlantic Council. Close to the 11 minute mark Stiglitz says that Griesa's decision on Argentina and the Vulture Funds was "very peculiar" and that it made restructuring almost impossible.

April’s Employment Report showed a gain of 223,000 jobs and a further one-tenth percent decline in the unemployment rate to 5.4 percent. The good news is the report shows the economy continues to nudge forward and create jobs for newcomers into the labor force. The bad news is the economy is not growing fast enough to raise wages.

Average hourly earnings for production & non-supervisory workers, who are eighty percent of the workforce, are up just 1.85 percent over the past year. In April, the rate of wage increase actually declined.

The broad (U-6) measure of unemployment stands at 10.8 percent, which is far above the level of past economic cycles. Furthermore, unemployment is widespread across all business sectors. The labor force participation rate also remains at a historically low level, indicating that many workers stand ready to re-enter the work force when jobs become available. Together, these conditions show labor supply is plentiful and there is no threa…

Here, as per the comments, an update picture of austerity in the UK in comparison to Greece and the US. I added Germany too this time. Data from the International Monetary Fund (IMF, WEO Database). Figures for 2014 and 2015 are estimates.

This graph shows total government expenditures rather than just consumption. Note that the UK has pursued austerity, but it has not been particularly more austere than the US. Germany has pursued moderate, very moderate, fiscal expansion. The decline in government spending in Greece has no parallel, as should be expected, since the country was forced to pursue austerity policies.

Again, this shows that David Brooks notion "that there were two countries that did what we call austerity," meaning Germany and the UK, and that is connected to the fact that "the two strongest political leaders right now in Europe are Angela Merkel and David Cameron," so that this is a vindication of austerity policies is, as I had noted before, prepost…

So just heard David Brooks say at the PBS News Hour -- it says something about the state of media in this country that PBS (not surprised about the NYTimes) would have such a blatant ideologue as a commentator -- suggest that the election in the UK, which is doing better than other countries in Europe, proves that austerity works.

Obviously the UK economy sucks, and Labor promised austerity too, but the point is that Brooks suggested that the UK (and Germany) had austerity while others didn't. Not that he checks data ever. So I did. Below government final consumption in constant prices in Greece (blue) and the UK (red).

As you can see it's true that the UK has done better, simple because of less austerity, in fact, looking at just government consumption the UK doesn't seem to be pursuing austerity at all. So the fact that the governments in the UK and Germany are for austerity, while the current Greek one, at least nominally, it's not, does not mean that they do pursu…

Grading finals. Very slow posting. BLS published the Employment Situation Summary and labor markets suggest that the slow recovery continues. A bit more than 220k jobs created in April, and the unemployment at 5.4%. Wages still basically stagnant.

I wasn't a big fan of the Keynes/Hayek video. Mostly as I noted before more than once (here, for example), because Hayek was not really that relevant in the history of economic ideas. Keynes was debating with Pigou and Robertson, that is, the marginalist tradition in Cambridge going back to Marshall. Hayek was dispatched early on by Sraffa. Oh well, here the response video.

The Argentine Central Bank was created 80 years ago. The New York Times had this short piece, in which Raúl Prebisch, who declined to be appointed president of the institution (he was too young, 34 or so), is cited. He was effectively in charge of policy. Some discussion of his policies can be found in this paper with Esteban Pérez here (final version published here).

The famous Italian report, or parts of it, written in the early 1960s, which preceded the English papers published in the Cambridge Journal of Economics (CJE) in the late 1970s (here and here; subscription required), has been translated and published by the Review of Political Economy (ROPE) and is available here.
Some excerpts that are particularly relevant given recent debates on growth within heterodox schools. Garegnani says:
"it follows that the effect of increases in real wages on the absorption of unemployment will depend in large measure on how they affect final demand.
It is necessary then to distinguish between the two components of final demand: consumption and exports."
On the effects of real wage changes on consumption he argues that:
"As regards consumption, increases in real wages lead to a rise in consumption and hence, provided the economy has accumulation capacity that is not fully utilized, to an expansion of the productive system and to an increas…

"The question is whether we are prepared to move out of the nineteenth century laissez-faire state into an era of liberal socialism, by which I mean a system where we can act as an organized community for common purposes and to promote social and economic justice, whilst respecting and protecting the individual - his freedom of choice, his faith, his mind and its expression, his enterprise and his property" (Collected Writings of John Maynard Keynes, volume XXI, p. 500).

The Unit Root of the Matter: Is it Demand or Supply? -- Roger Farmer on why the normal rate at which the economy fluctuates is driven by demand. In his words: "aggregate demand, driven by animal spirits, is pulling the economy from one inefficient equilibrium to another." I would say autonomous demand. But close enough.

US External Debt: A Curious Case -- Paul Krugman on his version of dark matter. For him the explanation is: "the differential performance of stock markets." My views here. Basically, there is nothing curious about it really.

New Working Paper by John Smithin. From the Introduction:
One of the main collective contributions of the various heterodox schools of monetary thought, such as circuit theory, Post Keynesian theory, in both its horizontalist and structuralist versions, modern money theory (now known simply by its acronym MMT), and others, has been to stress the importance of the endogeneity of money via bank credit creation. This issue was hardly discussed at all in the economics mainstream after Keynes’s death, not until the very end of twentieth century and the beginning of the twenty-first.
Read rest here.

May 1st commemorates, as it is well known, the workers strike at McCormick Harvester factory in Chicago in defense of the eight hour journey (such a radical idea!), which led to police repression and the deaths of four workers. It also commemorates the events of May 4th the so-called Haymarket affair, in which a bomb killed a policeman (and after more police repression other four workers were killed and several wounded) and eight anarchists leaders were framed and sentenced to death. In dark blue are the countries that commemorate labor day on May 1st.